Kanzhun - Q2 2024
August 28, 2024
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Second Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.
Wenbei Wang (Head of Investor Relations)
Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter 2024 earnings conference call. Joining me today are our Founder, Chairman, and CEO, Mr. Jonathan Peng Zhao, and our Director and CFO, Mr. Phil Yu Zhang. Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under company's control, which may cause actual results, performance, or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and do not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only.
For a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman, and CEO.
Jonathan Peng Zhao (Founder, Chairman, and CEO)
[Foreign language].
Hello, everyone. Thank you for joining our company's second quarter 2024 earnings conference call.
[Foreign language].
I will start with our financial numbers. In the second quarter, the company achieved calculated cash billings of RMB 1.95 billion, up 20% year-on-year. Our GAAP revenue reached RMB 1.92 billion, up 29% year-on-year. We recorded a net profit of RMB 420 million. Meanwhile, our adjusted net income, which excludes share-based compensation expenses, rose to RMB 720 million, up 26% year-on-year. In the second quarter, the average verified MAU on the BOSS Zhipin app grew by 25% year-on-year to 54.6 million. From January to June this year, the company attracted around 28 million newly added verified users. The total paid enterprise customers in the twelve months ended June 30, 2024, reached 5.9 million, representing 31% year-on-year growth.
[Foreign language].
Our cash billings in the second quarter still have a decent year-on-year growth, however, weaker on a quarter on quarter basis and a little bit lower than our expectation. This was mainly due to weaker demand from the recruitment side in the latter half of the second quarter. There were relatively fewer enterprise users and more job seekers in the market, which is what we refer to as a high CB ratio. In this case, most enterprise users found it easier to hire. For example, a project team that took three months to fill all the positions in the past, now only takes two months, reducing enterprise users' desire to spend more money on recruitment.
[Foreign language].
...We noticed that the growth trend of enterprise users is still good. There are two proofs. First, in the second quarter, the number of newly added enterprise users was higher than that of the same period last year. Second, the average monthly active user of enterprise users increased by 17% year-on-year. Investors who have long been following us know that user growth is the core growth driver for our revenue growth. We still have a good growth of enterprise users in the second quarter. This is a good news for the company.
[Foreign language].
We believe the second quarter performance is a temporary situation. Long-term structural growth opportunities remain strong. Our confidence is grounded in three factors: First, the Chinese market is a huge economy with the highest small and medium-sized enterprise activities and the largest number of enterprises. Second, there is a persistent shortage of labor supply, particularly among younger generation, which is unlikely to change in the near future. Third, our efficient service model is best suited to address the challenges presented by the first two factors.
[Foreign language].
Under current situation, the company's management team believe we should do what is best suited for the moment. Today, I will talk about three things.
[Foreign language].
The first thing is to ensure the full year profit target. During challenging times, confidence is crucial for everyone, no matter if it's core investors, core employees, or potential investors, and the prospective talent. In tough times, confidence is more valuable than gold. Ensuring profitability for the year will help to sustain confidence in the company, which can be achieved through further refinement of our management.
[Foreign language].
The second thing is to invest more resources on new growth driver. For example, in the blue-collar manufacturing industry, there may be some new dollars.
[Foreign language].
To briefly review the blue-collar manufacturing industry we had talked before. The background is the complex relationship between factories, workers, platforms, and agents. In addition to many historical issues, have made it challenging for online platforms to serve the blue-collar manufacturing industry.
[Foreign language].
The history is three years ago, we started by purifying the job seeking and recruitment environment through what we called the Culture Project [audio distortion]. The original intention of this initiative has two. First, is to protect the overall job seeking process of the job seeker. Second, was to help blue-collar agents and organizations make money decently.
[Foreign language].
The current situation is, after a tough game, the long-standing issue of bad or low-quality agents driving out good ones across online recruitment platform is beginning to improve. This positive shift has already happened. Good guys who commit to treating job seekers with integrity, posting authentic job details and salary information, are now receiving better results... We have named this trustworthy agents as Platform Certified Conch Select.
Speaking of the data sheet, [Foreign language].
The latest data is our [audio distortion] project generated over RMB 40 million in revenue in the second quarter, which is much higher than that in the first quarter. This good signs make me feel that our strategy and the persistence in the past few years are correct.
[Foreign language].
The third thing is our overseas business. As we all know, economies are cyclical, and these economy cycles are often out of sync across different countries and regions. Large companies with a strong global presence can effectively utilize this regional big shift to support sustainable growth. In particular, BOSS Zhipin has pioneered our current model globally. This model is very likely to provide value and gain space for survival and development in various regional markets through localization, hybridization, and evolution. While we are seeing promising progress in Europe and Asia, it's still too early to report out results.
[Foreign language].
Last but not least, it's important to address confidence again, particularly in terms of strengthening the returns for our shareholders who have constantly supported us since our IPO. For example, we will continue to increase our share buyback efforts. We have bought over $88 million repurchased in the past four months. This all will help to reinforce the valuable confidence of our shareholders and management.
[Foreign language].
That concludes my part of the call. I will now turn it over to our CFO, Phil, for an overview of our financials. Thank you.
Phil Yu Zhang (Director and CFO)
Thanks, Jonathan. Hello, everyone. Now, let me walk you through the details of our financial results of the second quarter of 2024. In this quarter, we delivered healthy and sustainable top line and bottom line growth. Calculated Cash Billings and revenues grew by 20% and 29% year-on-year, respectively, mainly driven by the growth of our enterprise users. Average monthly active enterprise users in the quarter grew by 17% year-on-year. We continued to penetrate into different categories of users, especially in blue-collar sectors, small- and medium-sized enterprises, and users from lower-tier cities. As a result, revenue contributions from those sectors continued to increase. Paid enterprise customers in the 12 months ended June 30, 2024, increased by 31% year-on-year to 5.9 million. The paying ratio was higher than last year, but sequentially kept stable.
We are happy to see that ARPPU average paying, per paying user, of paid users increased around 3% year-on-year and 3% sequentially, reaching the highest level in the past four quarters. Part of the reason was that revenue from key accounts outgrew small and middle-sized accounts, but more importantly, was our effort to increase client usage by offering high quality and targeted products and services. Moving to the cost and expenses side, excluding share-based compensations, adjusted operating cost and expenses increased by 20% year-on-year to RMB 1.3 billion, and that led to an adjusted operating profit of RMB 660 million in the quarter, up 52% year-on-year. Adjusted operating margin reached 34.4%, up by 5.3 percentage points compared to the same quarter last year, and it hit an all-time high.
Cost of revenues increased by 17% year-on-year to RMB 317 million in this quarter, representing a gross margin of 83.5%, continued its upward trend. Sales and marketing expenses increased by 16% year-on-year to RMB 545 million in this quarter. This increase was mainly driven by our enhanced investment in customer acquisition, as well as higher sales commissions. R&D expenses increased by 21% year-on-year to RMB 444 million in this quarter. Excluding share-based compensation expenses, adjusted R&D expenses increased by 28% year-on-year to RMB 334 million. This increase was primarily driven by our earlier investments in AI infrastructure, which generated a higher depreciation cost. Our G&A expenses increased by 29% year-on-year to RMB 261 million in this quarter.
Adjusted G&A expenses increased by 21% year-on-year to RMB 153 million, mainly due to increased employee-related expenses. Our net income was RMB 417 million in this quarter, up 35% year-on-year, and our adjusted net income in this quarter reached RMB 719 million, and increased by 26% year-on-year. We expect that our share-based compensation expenses reached the peak level in this quarter, and will gradually decline in the coming quarters. We are now reviewing stock compensation scheme and studying some schemes which might even accelerate the process. Net cash provided by the operating activities grew by 14% year-on-year to RMB 869 million for this quarter. As of June 30, 2024, our cash and cash equivalents, short-term time deposits, and short-term investments totaled RMB 14.3 billion.
Notably, in the past four months, we have repurchased a total consideration of $88 million, which demonstrated our commitment in shareholders' return and long-term confidence of our business. And now for our business outlook. For the third quarter of 2024, we expect our total revenues to be between RMB 1.9 billion and RMB 1.92 billion, a year-on-year increase of 18.2% to 19.5%. That concludes our prepared remarks, and we would like to answer questions. Operator, please go ahead with the queue.
Operator (participant)
Thank you. If you'd like to ask a question, please press star one one. If your question has been answered and you'd like to remove yourself from the queue, please press star one one again. One moment for questions. Our first question comes from Timothy Zhao with Goldman Sachs. Your line is open.
Timothy Zhao (Analyst)
[Foreign Language]. Thank you, management, for taking my questions. I have two questions here. The first is regarding your user growth and market share. How does management team view the market share currently? And, in the adverse macro environment currently, are we considering to further accelerate the market share again? And second, as we mentioned, to ensure the full year profit this year, could management share what is your detailed measures, and what is your OpEx, including the SPC trend for the rest of this year? Thank you.
Jonathan Peng Zhao (Founder, Chairman, and CEO)
Hello, uh,
[Foreign Language].
Thank you for your question. For the first one regarding our competition, the current competitive landscape is relatively stable, or we'd rather say we have a relatively good competitive advantages, and there are many third-party data and our own data can prove that.
[Foreign Language].
For example, we just mentioned, our MAU and DAU all achieved a historical high in the second quarter. The user activities, for example, the DAU and MAU ratio still remain at a very high level. So in the same case, for the user usage time. So, all of those data prove that as a leading online recruitment platform, on every perspective, our competitive landscape is relatively stable and continued in a good trend.
[Foreign Language].
And in terms of guarantee the a full year profit target, so we believe it's very critical for our core employees, for our management to have this target. This is part of our confidence and is a testify of whether this firm is very stable and strong. So on a strategic perspective, the first way is our full year user growth target is RMB 40 million-RMB 45 million, and in the first six months, the first half of this year, we have already achieved 28 million, so there are only RMB 12 million-RMB 17 million left for us to grow. It should be relatively easy to achieve, so we can control our overall spending on marketing to appropriately achieve our profit target.
Second, under current circumstances, we want to better use our resources, and to move the priority of those project initiatives with lower success rate and higher target to postpone its resource usage and prioritize the importance of reducing the overall cost. And this can be achieved through internal management and with we believe with very high level of certainty. In terms of detailed data, I think Phil can give you some more color.
Phil Yu Zhang (Director and CFO)
Regarding our bottom line and the major cause and the expenses item, I'll quickly mention our thoughts. As Jonathan just mentioned, we would like to try our best to secure our operating profit. Our target for full year non-GAAP operating profit is set as RMB 2.3 billion.
Which is roughly up 40% year-over-year, on top of last year's adjusted, non-GAAP adjusted operating profit. So, in terms of our gross margin, our gross margin will, in third quarter or following quarters, will stay flat or slightly improve, due to higher economies of scale. And our marketing expenses, as Jonathan mentioned, will be controlled, and at a relatively low level. Our selling expenses and the G&A expenses, those expense items, will all be moderate and in a reasonable situation. And in terms of the R&D expenses, because we probably will shift our priority from, some like AI related infrastructure investments, into other things. So from third quarter or from second half, this part, the expenses will decrease. So altogether our operating margin will increase, second half and versus the full year operating margin versus last year will also be better. Thank you.
Wenbei Wang (Head of Investor Relations)
And。
Jonathan Peng Zhao (Founder, Chairman, and CEO)
[Foreign Language].
And for the market share, which a lot of investors are concerned and have asked a lot about. We actually are after experiencing the years past, we notice that on the current situation, every dollar we spend, there will be more job seekers and less enterprise users. So the CB ratio is currently a challenge for the platforms who is based on the supply and demand balance of both sides. So from this perspective, to keep the balance, the CB ratio, we actually don't need to spend money too aggressively. And that's my view to share. In addition, to increase the market, dollar market share on the enterprise user side, you know, currently the overall paying desire of the enterprise are not that strong, so the best and most effective way to enlarge our enterprise market share is to start a price war. And currently it is a chance, it is a time to do that. But I'm not planning to take even more shares by lowering our price. I don't think this is a meaningful thing to do at current situation, and that's my view to share. And thank you, operator. Let's move on to the next question.
Operator (participant)
Thank you. Our next question comes from Eddy Wang with Morgan Stanley. Your line is open.
Eddy Wang (Analyst)
[Foreign Language].
[Foreign Language].
Thank you management for taking my question. We understand that the macro situation since you know second quarter has been relatively weak, so just want to hear your view. Have you witnessed any improvement in the recruitment demand in August versus June and July?
How the performance of different industries and different, you know, the enterprise of different skills. The second question is, if the macro continue to be relatively weak, will we have any change in the business strategy to offset the, you know, the macro impact? Thank you.
Jonathan Peng Zhao (Founder, Chairman, and CEO)
[Foreign Language].
First, we cannot talk about the macro, but we can share with our own situation, which we observed from our website and app. First one is, in the second quarter, the overall willingness to pay from recruiters are lowering. And secondly, the blue collar growth is still better than white collar, that one still stands.
[Foreign Language].
Let's further look into blue collars. There are several observations we can share with you. The first observation is that the overall blue collar recruitment demand reached a peak historical high in the pre-festival recruitment season, but just fell back relatively faster in the second quarter.
[Foreign Language].
Even relatively faster fall back in second quarter, we still see a very good year-on-year growth in terms of the blue collar revenue in the second quarter. And among the detailed subsectors, there is one highlight, which is the factory industry continue to outperform all other industries. And after that is logistics sector.
[Foreign Language].
There are also other two observations worth sharing. First, compared to the first tier cities, the recruiter enterprise user growth is better and faster in the second, third, and fourth tier cities. And the second one is, there is a continued trend, which we have already discussed in the last quarter's results, that is a larger size of the enterprise growth grow better. For example, a big enterprise with over 10,000 employees are the companies with the fastest or the faster growth rate.
[Foreign Language].
And about our recent situation in August, we'll continue to talk about the blue collar. So blue collar, the overall supply and demand situation in August is better than the second quarter, and the enterprise to job seeker ratio continue to see improvement. And we observe the daily active enterprise user number continue to go up week by week, and the manufacturing industries are still the best among all others.
[Foreign Language].
And the second question about what kind of monetization strategy we can use to, to, to against the macro headwinds? The first, the things we are currently doing first, is to concentrate our resources to the business and department, which we, because it's, it's faster outlook, longer outlook, we give limited resources to. For example, on the blue collar manufacturing industry, we from [audio distortion] project to [audio distortion] and to generate revenues. We are currently enhancing our investment and input on this area.
[Foreign Language].
I cannot be so very certain to say that the [audio distortion] project, we are have very big revenue from our cooperation with the blue collar manufacturing industry in the third and fourth quarter of this year. But, we believe this is the first real chance, actual chance for the online recruitment platform to go into the blue collar manufacturing industry and make some real money.
[Foreign Language].
And that's my answer to your question.
Eddy Wang (Analyst)
[Foreign Language].
Operator (participant)
Thank you. Our next question comes from Robin Zhu with Bernstein. Your line is open.
Robin Zhu (Analyst)
So two questions, one, would management elaborates on recent developments in the company with regards to the WD acquisition, you know, what if management could give us more color on overseas and investments in AI? And second, given the weakness in the company's shares in recent times, could management share some thoughts on go forward buybacks, and whether the company will consider instituting a regular dividend?
Thank you.
Jonathan Peng Zhao (Founder, Chairman, and CEO)
[Foreign Language].
Thank you for your question. The first one on what the Wo De Da Gong Wang, WD Technology. I have mentioned that in our conference call before, and because the Jason, the CEO is a very respectful partner of ours, and since their establishment in 2015 until now, and they have been able to become the number one in their own areas. So to purchase majority of the shareholder stake of WD Technology is out of the recognition and the respect of Jason as CEO and his team work in this area, and it's not just our work for expansion into the area, it's more likely to add ourselves with some capabilities which is difficult for us to develop by ourselves.
[Foreign Language].
And Jason and his team, the industry actually has fully recognized their knowledge, know-how and model in the manufacturing industry, and currently, he's working with us for three things. First of all, they are fully independently to lead the development of WD Technology.
[Foreign Language].
And the second thing is to help the company to push forward the overall environment improvement under the [audio distortion] project and the monetization, the commercial plan under the [audio distortion] project.
[Foreign Language].
And the third one, which not suitable to discuss more details publicly at this moment, is that Jason is currently leading the operational team of WD Technology and part of our R&D team to together combine the advantages of our traffic and their experience and know-how in the industry to combine together to publish a new product or service, which we are rather looking forward to that, but maybe in the next quarter.
[Foreign Language].
[Foreign Language].
And for our overseas business first, for our Hong Kong initiatives, we have made some progress, and have initially to published a MVP service to serve the recruiters in Hong Kong, and see how the users might react or behave on our platform. This might take two to three months, and then we will decide whether we can accelerate the development of this business. And in terms of the revenue, which a decent revenue from Hong Kong business, I think is a little bit early, maybe take maybe more than next two to three years. And in the Asia and the Europe area, we and some developed countries, we have take quite a long time to explore.
At current state, I, what I can say is that, I'm satisfied with the local team we have recruited, and we have confident.
[Foreign Language].
[Foreign Language].
And the third one regarding the generative AI, I have shared some of our thoughts before, and I am, and maybe add some more here. So there are two point. First, in scientific perspective, we are executing a tail light project, which is for our research guys, our tech guys to understand, to know what the most developed technology in this area is, and what they are doing. But we are not planning to invest more resources, actually, we can, we are not affordable to do that, to actually do that. So we just know what they are doing and kept up with the most advanced technology.
[Foreign Language].
On the application level, so our strategy is still if something not happening before the emergence of generative AI technology, then we give priority to that. So under that strategy, we have some good application in the industry level, so we are using it internally now.
[Foreign Language].
And, about the shareholder returns, we have long been insist on providing shareholder return to our shareholders, which I believe is the basic ethic for the company, and we always attach great importance to that. So which because, it is, it's a very true problem, very true, very crucial point for the core shareholders and the employees to maintain our strong confidence. So, it it's very essential and important to do a good shareholder return project. So, we have a $200 million share buyback program, and in the last four months, we have already bought $88 million. This is a real number and a real act we have done for a company of our size, and we will continue to do that.
[Foreign Language].
About dividend, I can say that for potential dividend payout plan, we are still under research. That's my answer to your question. Given the time constraint, I think that's the last question for our call operator.
Operator (participant)
Thank you. Due to time constraint, that concludes today's question-and-answer session. At this time, I'll turn the conference back to Wenbei for any additional closing remarks.
Wenbei Wang (Head of Investor Relations)
Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or [audio distortion]. Thank you.
Operator (participant)
Thank you. You may now disconnect. Good day.